Barclays Capital has lowered its US advertising outlook for 2011, based on weak macroeconomic data: “In recent weeks, the Fed has lowered its 2011 GDP outlook, Q2 GDP data has disappointed, ISM manufacturing and services data came in below expectations, consumer confidence has fallen to multi-year lows, and this past Friday nonfarm payrolls reported zero net jobs were created in August.”
Barclays now looks for US ad growth of 1.4% YoY in 2011 and 4.0% YoY in 2012, compared to 2.9% YoY and 5.2% YoY previously.
Barclays lowered their estimates most aggressively for newspapers, direct mail, and directories as they continue to believe that hyper-local and direct response-based ads are migrating to the web at the expense of older, traditional mediums. This trend has helped fuel the rapid growth of more localized and targeted services such as Groupon and LivingSocial.
For 2011, National Broadcast TV (including Olympics) was lowered from 3.6% to 2.4%. Local Broadcast TV (including political) was at (0.7%) in 2011, now it’s at (1.7%). National Cable was to grow 9.5% in 2011, that has been revised to 8.1%.
For 2012, National Broadcast TV (including Olympics) was moved downward from 10.3% to 9.2%.Local Broadcast TV (including political) was moved from 17.1% to 15.3%. National Cable TV was at 9.0%, its now estimated to grow 7.5%.
The estimate for Radio’s ad growth in 2011 was dropped from 1.5% to 0.6%. For Radio in 2012, the growth estimate was dropped from 1.5% to 0.4%.
Internet advertising continues to benefit from secular tailwinds-Internet ads represent just 15% of US advertising spend, even though the average consumer spends 36% of overall media time online.
TV advertising remains an effective way for advertisers to reach a broad audience and the scatter market remains in line for now, although retail and auto trends are concerning. In addition, the broadcast and cable networks locked in double digit CPM increases on greater volume in this year’s upfront, which helps mitigate some of the potential downside in a recessionary environment.
“While we recognize that upfront inventory is cancellable, we estimate that in the 2008-2009 downturn, upfront cancellations as a percentage of total upfront buys ranged from the low-to-high teens on average, compared to a mid-to-high single digit cancellation rate in a more ‘normalized’ environment,” the report said.
Automotive recovery stalling
Automotive advertisers drove much of the advertising recovery in 2010, as auto manufacturers and dealers returned to the marketplace. Auto was the largest and fastest growing advertising category last year, as US auto sales recovered from its 2009 lows. Looking forward, Barclays is taking a more cautious view on advertising partly due to reduced momentum from auto advertisers, as auto sales in the US appears to have stalled in recent months and sales expectations have been revised down for 2012.
According to Barclays Capital Auto & Auto Parts Research Analyst Brian Johnson, the seasonally adjusted annual rate (SAAR) for US light vehicle sales has been approximately 12.7-12.8 million in May, June, and July when adjusting for impacts from the Japan earthquake. Early indications for August auto sales are consistent with the view that auto sales ex-quake impacts have stalled at around a 12.7-12.8 million SAAR.
While auto sales may recover somewhat in the second half of 2011 as Japanese vehicle inventory returns to showrooms, pricing power (which until this point has seen some stability given reduced supply) may subsequently ease as the Japanese OEMs use the increased availability to drive aggressive sales promotions and recapture some of the market share they lost after the March earthquake.